DMS Posts

MTD: CIOT webinar explains how it should work

Rebecca Cave listened to the CIOT webinar on MTD, which provided some useful insights on how HMRC will apply the MTD for VAT regulations, and where the other aspects of the MTD project have got to.

The webinar was presented by Richard Wild and Margaret Curran of the CIOT technical team, alongside Adrian Rudd of PwC, who chairs the CIOT digitalisation and agent strategy working group. The CIOT team has amassed a huge pool of knowledge about MTD as they have been in close contact with HMRC at all stages of this project.

The webinar covered these areas of MTD:

  • VAT
  • Income Tax pilots
  • MTD for individuals
  • Tax agents
  • Companies and complex businesses

I have picked out some key points to report, but I recommend listening to the entire 90-minute webinar, which can be streamed for free, and rerun multiple times so you can share it with your staff.

VAT notice

HMRC is expected to issue its definitive guidance on MTD for VAT in the form of a VAT notice, in the very near future. This notice will set out how a business will be able to claim an exemption from MTD filing on the grounds of religious believes, insolvency procedure or not reasonably practical. Once HMRC has accept the business is exempt from MTD for VAT reporting, it should also be exempt from income tax reporting for MTD.

Who is drawn into MTD?

All VAT registered businesses with UK taxable turnover over the VAT registration threshold (currently £85,000) will be required to comply with the MTD recording keeping and reporting requirements for the VAT periods which begin on and after 1 April 2019. VAT periods will not be split, so if the VAT period ends on 30 April, the business will enter the MTD regime from 1 May 2019.

Where a business is VAT registered but has turnover under £85,000 at April 2019, it is not required to enter the MTD regime in April 2019. However, those businesses will have to monitor their turnover on a rolling 12-month basis, and if the turnover breaches the VAT registration threshold, the business will have to enter the MTD regime from the beginning of the next VAT period.

Once a business is within the MTD regime, it can’t opt out even if its turnover drops below £85,000. The only way out of the MTD for VAT regime will be to deregister for VAT.

Any business which registers for VAT on or after 1 April 2019 will be required to enter the MTD regime from the start of their first VAT period, unless the business has registered voluntarily, in which case MTD reporting will not be mandatory.

Charities with trading subsidiaries, and landlords who let VAT-opted property, will fall within the MTD regime on the same terms as other businesses.

VAT returns under MTD

HMRC is committed to supporting parallel means for voluntarily registered businesses to submit VAT returns, ie by way of the current online interactive VAT form, but only until April 2020. It is possible that all VAT registered businesses will be mandated into MTD for VAT from April 2020.

All VAT returns for businesses which are mandated into MTD will have to be submitted via MTD-compatible software which uses an API to transmit data to HMRC.

What to record

As a tax agent you will be permitted to maintain the digital records required for MTD on behalf of your clients. The digital records for the quarter need to be completed by the earlier of:

  • The due date of the VAT return
  • The date on which the VAT return is actually submitted

All VAT records need to be retained for six years, but HMRC won’t require the digital records to be held in the accounting software in which they were recorded. That data can be downloaded and retained in some other form.

The webinar went into some detail about what exactly will have to be digitally recorded for each transaction, as the MTD rules are more onerous than the current rules for recording sales and purchases for VAT purposes.

Retail business and those using certain special schemes won’t have to digitally record every transaction. Those relaxations from the VAT regulations will be set out in the forthcoming VAT Notice on MTD.

How data will be transferred

The webinar contained several examples of how the VAT data may be transferred to HMRC from the software or spreadsheet where it was recorded. These examples will be contained in the VAT notice in a similar form.

From April 2019 the relevant totals for the VAT return plus any voluntary supplementary data must be submitted to HMRC via an API from the MTD-compatible software.

However, HMRC realises that businesses use combinations of software and spreadsheets, so data needs to be transferred between these different elements. For the first year of MTD, those transfers between software or spreadsheets need not be made digitally, but from 2020 such transfers must be done via a digital link.

Manual adjustments to the VAT data will be permitted to the VAT account, say for partial exemption calculations. There will be more information on this in the VAT notice.

Software availability

There is a timing issue for software production as we are only nine months away from the go live date. Currently there are very small numbers of businesses and software companies testing MTD-compatible software in the MTD for VAT trial.

Richard Wilde commented that its going be a “very tight timetable” to get MTD software ready on time. Once the software products are adequately tested, the detail of how to obtains those products will be listed on HMRC pages of

Adrian Rudd commented that PwC are building API-enabled spreadsheets and other MTD software. PwC has made an offer that the API-enabled spreadsheets will be available free of charge to charities to use.


A new penalty points system for MTD will be introduced, and the draft legislation to enable this is expected to be issued this summer.

During the first 12 months of the MTD regime HMRC will not generally impose penalties for non-compliance, but this soft-landing approach will only apply to businesses who make a real effort to comply. Those businesses who make no attempt to meet the MTD requirements should expect penalties to be imposed.

Publicising MTD

HMRC’s attitude to non-compliant businesses seems a bit unfair as it has made very little effort to communicate the changes to the business community at large.

The CIOT have been urging HMRC to start telling businesses that MTD is coming in 2019. HMRC is apparently developing a communication plan, but the CIOT have not seen a draft.

Income tax reporting

As for MTD for VAT there will be a de-minimus turnover limit for MTD income tax reporting, below which MTD reporting will be voluntary. This threshold is expected to be £10,000 for income tax, but as HMRC hasn’t confirmed this figure, it could be set at a higher level in regulations.

However, we do know the threshold will be set per taxpayer not per business, as for VAT. For example, an individual with £6,000 rental income and £6,000 of trading income will fall within the MTD income tax regime, as his total turnover of £12,000 will exceed the expected £10,000 minimum threshold.

Adrian Rudd said the quarterly reporting of the raw trading results to HMRC for income tax will serve no purpose other than prove to HMRC that the business is keeping digital records.

The quarterly data won’t be adjusted for tax matters such as disallowable deductions, or for accounting adjustments such as accruals, as those adjustments will be made in the final report for the year. As such the MTD quarterly reports can’t be “wrong”, and the figures will not be enquired into.

Each business (not taxpayer) will have to do an MTD return for income tax, whereas for VAT the reporting it will be per VAT registration. The reporting deadlines for income tax and VAT will be different and separate, even if the VAT quarters align with the accounting period, as the VAT reporting period has an extra seven days.

It is possible that MTD for income tax will be mandated as early as April 2020, but the CIOT expect this implementation date to be later.

Companies and complex businesses

Partnerships will not be within MTD for income tax if their turnover is greater than £10 million.

HMRC appears to have no settled policy on MTD for corporation tax. CIOT has been told that will be a formal consultation on MTD for corporation tax “later in Spring 2018”. In theory MTD for corporation tax could be mandated as early as 2020, but that seems unlikely.


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Annual accounting – how to make it work for you

A business associate says that his firm uses VAT annual accounting to help with its cash flow. What are the conditions for joining the scheme and can it offer you the same cash-flow advantages?

Annual accounting

As the name suggests, VAT annual accounting is an HMRC scheme that allows you to submit a single VAT return each year instead of the usual four. That alone makes the scheme attractive, but it also means you pay fixed VAT payments plus an annual balancing payment. Monthly payments are the norm, but you can ask HMRC to go quarterly.

Choose your date carefully

The annual accounting scheme rules allow you to choose the starting point for your annual return. Picking the right date to suit your business can give you a cash-flow advantage.

Tip. If your trade is seasonal, choosing an annual return period that starts at the beginning of the seasonal boom gives you the best result.

Example. Bill and Ben own three restaurants in seaside towns. 75% of their £800,000 (excluding VAT) annual turnover occurs in July to September. Before annual accounting they made VAT returns for calendar quarters meaning that £120,000 of their annual VAT was payable at the end of October each year, while the remaining £40,000 was spread over the other three VAT quarters.

They applied for an annual accounting year starting on 1 July. This meant their VAT bill in October was just £40,000 which allows them to hang on to the difference of £80,000 (£120,000 -£40,000) an extra three to nine months.

The annual return and payment

When you’re in the scheme your monthly or quarterly payments are based on your VAT bill for the previous twelve months. This means if your turnover is growing you gain another cash-flow advantage.

Example. In the first year of using the scheme Bill and Ben’s turnover increased so that their annual VAT bill rose to £200,000. However, their first three quarterly payments in the second year remain at £40,000. Of course, they must pay the difference and this is due one month after making their annual return, which must be submitted by 31 July. Their VAT payments for their third year in the scheme are based on their second year and so are £50,000 per quarter.

Beware a reducing VAT bill

If the VAT payable for a year is less than the previous one, say because of falling turnover or increased purchases, your fixed payments under the annual accounting scheme will exceed your actual liability. If you think that’s going to happen you can apply to HMRC to reduce your payments.

Joining the scheme

You can apply to HMRC to use the annual accounting scheme if you expect to make VATable supplies of up to £1,350,000 (excluding VAT) in the next twelve months (see The next step ). But you can’t apply if you’re registered for VAT as part of a group, have stopped using annual accounting in the previous twelve months or owe VAT which is overdue.

Your expected VATable supplies over the next twelve months must not be estimated at more than £1,350,000 (excluding VAT) and your business must not be part of a VAT group registration. You can usually gain a cash-flow advantage if your business income is growing or is seasonal.
DMS Posts

Where is the bridging software to plug the MTD gap?

Where is the bridging software to plug the MTD gap?

One of the unresolved mysteries of Making Tax Digital is how and when tools will become available to let businesses transfer spreadsheet-based VAT calculations into the new end-to-end MTD for VAT system.

With the VAT pilot scheme now in its early stages and mandatory online filing less than a year away, the spreadsheet question cropped up again and again in the recent Accounting Excellence Talk on MTD.

During the live webcast, panellist Rebecca Benneyworth explained, “One of the key bits HMRC emphasises in the regulations is that it must be end-to-end digital. It’s fine to take data from some software and then push it through a spreadsheet. If your VAT affairs are extremely complicated, you probably will still have to do that.

“But HMRC says is that is not to be rekeyed. It’s got to be electronically transferred and then submitted from the spreadsheet, or from the spreadsheet back into the product and submitted from that.”

The spreadsheet question is of equal importance to practitioners advising small businesses and large groups with complex VAT arrangements, she continued.

When VAT came up on the rails, she suggested officials visited some large companies to see how they did VAT. In one instance, a company had 23 linked spreadsheets to work out its partial exemptions across the group.

“It was at that point HMRC realised they would have to allow data to pass through spreadsheets,” Benneyworth said.

What is MTD bridging software?

The initial digital taxation proposals cut spreadsheets out of the loop. However, after encountering complex issues such as those described above and intense lobbying from accountants, professional bodies and various select committees HMRC comprised, coining the snappy term ‘bridging software’ in the process.

When HMRC talks about bridging software, this is more than likely to come in the form of an add-in widget that you bolt onto a spreadsheet to transfer the data without rekeying.

Such a solution has been tested on the income tax side, and as the MTD for VAT pilot progresses in the next few months, more such bridging tools are likely to come forward, Benneyworth said.

Companies coming forward

Webcast participant David J asked the panel: “When will HMRC approve software providers’ bridging software for those many many (mostly smaller) clients who rely on Excel spreadsheets for their VAT records and returns?”

HMRC’s answer is that commercial developers will provide the bridging software in time for the April 2019 go-live. Companies such as Clear BooksTaxCalcWolters Kluwer and DataDear are beginning to come forward with solutions.

Clear Books Micro, for example, replaces a client’s Excel spreadsheet with an equivalent, free online grid program to record sales, cash in and expenses, while the £75 TaxCalc VAT Filer app will import VAT data from a spreadsheet to feed an online MTD for VAT submission.

A public sighting at Accountex

MTD bridging software proved to be an elusive creature at last week’s Accountex in London, but some intrepid seekers found their quarry at the stand of DataDear.

An add-on developer for Xero and QuickBooks Online, DataDear starts from the premise that the business will operate its spreadsheet records in tandem with one of the main online systems. Once a basic ledger has been created for the organisation, it will be able to push data from DataDear’s validated spreadsheets to Xero or QuickBooks Online and filed with HMRC from there (the validated sheets will be filled in by the business user/accountant).

Big Four intrigue

For seasoned MTD watchers, one of the more intriguing aspects of the programme is how the Big Four accounting firms will bridge the spreadsheet gap. Serving the richest, most complex multinational clients across a multitude of different tax regimes, they cannot simply adopt a plug-and-play solution and hope for the best.

Rumours have reached AccountingWEB’s ears that at least two of the four are testing bespoke bridging solutions, although no one was available to comment for this article.

John’s ‘Stok-take’ – Bridging software

When the government changed horses from MTD for income tax to MTD for VAT, it seriously wrong-footed almost all of the developers serving the accounting profession. Specialist tax and practice developers understand how to build code around HMRC specs and regulatory requirements and had invested millions in retrofitting their compliance programs for MTD for income tax. All that work is “effectively redundant” in the words of Xero UK managing director Gary Turner as attention turns to VAT.

VAT invoices and returns are normally recorded in bookkeeping applications like Xero, Sage, QuickBooks and the rest. They tell us that all MTD for VAT needs is a little tweak to swap in the MTD equivalent of the VAT 100 return. But with a few exceptions, these developers don’t really get all the workflows, tracking and data queries that go on within a typical accountancy practice.

Specialist practice developers, meanwhile, are all trying to work out how they’ll link to the VAT bookkeeping engines to access filing dates, tax totals and payment details that should be available via HMRC’s emerging application programming interfaces (APIs). Sage, IRIS, Wolters Kluwer all have feet on both sides of the VAT fence and should be able to cater for all requirements. BTCSoftware and TaxCalc have made the necessary arrangements, while Forbes Computer is said to be courting VT Transaction+ users with a spreadsheet bridging tool.

On the ledger side, QuickBooks Online has a two-way interface with Taxfiler (now owned by IRIS), while Xero is working on a partner strategy with the likes of Thomson Reuters and IRIS.

FreeAgent already handles self assessment returns from its bookkeeping platform and has been an MTD enthusiast for years. Like Clear Books, FreeAgent has confirmed it will have an MTD-ready VAT return output option before too long.

As we have seen from the varied bridging tools that have surfaced so far, such a complex combination of situations and applications is spawning all sorts of different technical approaches. Keep an eye on AccountingWEB as the MTD for VAT pilot progresses, when we hope to compile a more detailed guide to the available applications.


DMS Posts

Draft regulations to enable MTD for VAT

Draft regulations to enable MTD for VAT reporting expose the muddled thinking behind the digitally linking of accounting software and spreadsheets.

Draft VAT regulations, and a notice to require taxpayers to comply with MTD reporting, were released for consultation on 18 December 2017, with a deadline for commenting set at 9 February 2018. This consultation period fits neatly over the busiest period for accountants and tax advisers, thus reducing the likelihood of detailed feedback from those who will be at the sharp end of the MTD regime, but I’m sure that is just a coincidence.

Digital records

What HMRC calls “functional compatible software” must be used record and preserve prescribed VAT related data (see below). That software must be used to calculate the VAT due, report the VAT figures (as per the current VAT return) to HMRC via an API, and to receive information back from HMRC.
The VAT related data includes: for each sale and purchase the business; the time of the supply, value and rate of VAT charged, or in the case of purchases, the amount of input VAT allowed. There is no requirement in the draft regulations that the electronic recording of this data must be done at the time the supply is made, or when the purchase is received. As long as the data is recorded electronically by the earlier of the date that the VAT return must be submitted, or is actually submitted, this will be sufficient (reg 32A para 8).

Mix and match

The business can use more than one piece of software to keep its digital records, but those separate software programmes must be “digitally linked”. HMRC provides three examples in the draft notice of what it means by digitally linked:
1. The business records transactions in accounting software (A), transfers the totals to spreadsheet (B) where adjustments are made for say partial exemption, then it uses another software package (C) to transfer the totals to HMRC. The transfer of data between A, B and C must all be done digitally.
2. The business uses accounting software to record all its transactions and to submit the VAT return. However, it uses a spreadsheet to work out the VAT adjustment on road fuel scale charges. That adjustment is manually typed into the main accounting package as a journal entry. As the road fuel adjustments are not part of the records which are prescribed to be kept digitally, the manual journal entry is permitted and the business is compliant with the MTD regulations.
3. A VAT group uses three different accounting packages (A1, A2, A3) for different companies in the group. The totals are collected in a spreadsheet (B) to create the VAT figures needed for the group VAT return. Spreadsheet B is then digitally linked to another software package (C) which is used to submit the group VAT return to HMRC. As long as software family A is digitally linked to B, which is also digitally linked to C, the requirements of the MTD regulations are met.


The digital linking of the accounting software to other submission software or to any spreadsheets used will apparently be a legal requirement, but the definition of exactly what digital linking means isn’t included in the draft VAT regulations currently out for consultation.

The reasoning behind digital linking is to avoid errors being introduced by human hand, but as it will be acceptable to make manual journal adjustments, and to perform manual calculations on spreadsheets as part of the process, the logic behind the digital linking falls completely flat.

It is clear from the slide pack provided with the draft regulations, the taxpayer will be permitted to record his transactions in a spreadsheet and transmit that spreadsheet by email or even on a USB stick to his tax agent. The agent then imports the data electronically from the spreadsheet into his own accounting software which is used to submit the figures to HMRC.
What remains the same

The VAT reporting dates won’t be changed. Businesses will report their VAT information by the same deadlines and for the same VAT quarters as they do currently. There will be no requirement to change VAT quarters to align with the accounting period or tax year, if those quarters do not already align.
The data provided to HMRC will be exactly the same as the totals currently submitted in the nine boxes of the VAT return. No additional information to back-up those totals will be required, but businesses will have the option to voluntarily submit supplementary data, such as the split of sales between different rates of VAT.


A business may be exempt from MTD reporting on any of the following grounds:
• Its turnover for the year ending with previous month is less than the VAT registration       threshold;
• The owners are practising members of a religious society, whose beliefs prevent the use

of computers;
• Disability of individual, or location of the business, which makes it impractical to use        digital tools; or
• It is subject to insolvency procedures.

If one of these circumstances applies the business will have to contact the VAT helpline to discuss alternative arrangements to submit their VAT figures. A business can’t choose to be exempt. If it is in fact exempt from MTD reporting, it can elect to submit MTD reports using suitable software before the start of the next accounting period.

Deregistration from VAT

Both the draft VAT Notice and the VAT regulations make it clear that a business is drawn into the MTD reporting regime if its annual turnover (which would be subject to VAT) exceeds £85,000. If the business turnover drops below £85,000 the business must continue to make MTD reports until it deregisters from VAT.

Next stage

If you have comments to make on the draft regulations or VAT Notice you can send them to or post them below and AccountingWEB will include those in its response.
The regulations will be subject to the negative resolution procedure – which means that if no MP, or member of the House of Lords, objects to the draft regulations, they are passed with no debate in Parliament.